The Amendment of the Financial Institutions Act by parliament has paved way for the introduction of Agency Banking. Agency banking, in its simplest form, is where a licensed financial institution engages an agent to provide special financial services on their behalf outside the conventional avenues of tellers, cashiers and ATMs. These services may range from deposits, withdrawals and savings. Going by this definition, it is very clear that Agency Banking has been with us since the advent of the mobile money agent when MTN Ugandan first introduced the service in 2009. With mobile money, a customer can engage an agent to deposit money on their account, withdraw money, transfer money, pay bills as well as access other financial services like credit. The success of this form of this phenomenon has got Banks drooling and they now want a piece of the action and justifiably so. The numbers are jaw dropping by any comparison; Over 19 million mobile money subscribers from a mere 10,000 in a space of in 2009 which amounts to over 53 percent of the Ugandan population. In comparison, the percentage of banked population was around 18-21 percent according to the Bank of Uganda Status of Financial Inclusion in Uganda Report in 2014. When it comes transactions mobile money is king. The amount of money transacted through the mobile money was over UGX 32 trillion (USD 8.9 billion) in 2015. In comparison the total assets of Stanbic Bank Uganda, the largest bank, were estimated at 4.5 trillion (USD 1.3 billion) by June 2016. The business case for banks to join the party is very clear, join the party or die to put it simply.
The battle has been won by the telecoms so far but the war has not been lost by the Banks yet. The arrival of Agency Banking gives the banks another opportunity to redeem themselves. When you look under covers you see that Telecoms despite their success have not done much in terms of innovation around product they have all copied from Safaricom in Kenya. It was a complete cut and paste! This is where the opportunity for Banks is. Banks unlike Telecoms (who are experts in telecommunication) have the longest experience providing tailored financial services to customers. Banks need to capitalize on this experience and tailor products suitable to the financially excluded. It was not until Commercial Bank of Africa (CBA) came along from Kenya that MTN Uganda was able to introduce consumer loans accessible on their customers over their phones. Up until this point there was little done to evolve the service since it was introduced in Uganda.
It is not going to be clear sailing however for the banks whose resumes do not portray innovation. Providing financial services to the poor is no trivial task. Banks cannot afford to copy Agency Banking as applied to other countries like Kenya which Agency Banking has been largely a success. Over 50,000 thousand mobile money agents are already offering deposit, withdrawals, transfers and other payments services. It would be short sighted and a missed opportunity for banks to follow the same path the telecom took of “copy and paste” from Kenya. The demographic group targeted by Agency banking in Uganda is largely the bottom of the pyramid and they have quite unique challenges. If agency banking in general is to be successful and be profitable to the players, a more innovative approach is required. Let us examine three of the top issues that need to be addressed during implementation. The first is proximity of the agents. Customer need the agents to be close to them to provide convenience for access to financial services. The second challenge which banks do not perform particularly well is customer relationship management. The third is tailoring suitable financial products for the target demography. A study by Steadman Group in Kenya 2007 indicated that banks, though for long believed to be the main sources of credit to Kenyans, ranked third with Savings and Credit Societies (SACCOs) coming second. Who came in first? The study showed that the ubiquitous shopkeeper found in every estate, village and even footpath is the most frequent source of soft loans as well as goods on credit and that the majority of Kenyans turn to him/her frequently. This analogy is live widespread in Uganda as well. If the banks want to topple this “king of credit” in the villages, they need to seriously incorporate the characteristics of this shopkeeper in their product proposition or they are in for some serious competition. This shopkeeper is next door to the borrower and therefore offers the best proximity. The shopkeeper being part of the community knows the borrowers home, family and garden, or workplace and therefore can offer unmatched KYC and customer relationship. Lastly, the borrower regularly needs salt, kerosene, sugar, food and other house hold items, which the shopkeeper has in his shop. The shopkeeper in this situation is offering razor sharp credit facility in exactly the need and amount when and as needed. To banks, this is a dream albeit an achievable one.
So what are some ways to achieve this? If there is one thing we have learnt from the disruptive inventions in the tech world, it is their ability to study in and out their customer preferences and behaviors. Banks can borrow a leaf here. For instance, using the shopkeeper example, the one of the most natural agent for agency banking should be that shopkeeper. Instead of some agent in kiosk by the roadside as many financial institutions are already thinking. Secondly, it is not a secret that 80 percent of the Ugandan community are engaged in some form of agricultural or related income generating activity. The financial services should therefore be tailored to the demography. Leasing facilities for purchasing farm equipment, credit lines for purchasing fertilizers, insurance for loss of products due to unpredictable weather patterns. These products should be the equivalent of business loans. For personal loans, credit services for food, health care, school fees, and believe it or not alcohol consumption. This is the innovation that will drive agency banking to a success and further build on the large gains brought by mobile money.